SAN FRANCISCO – Bitcoin was coined more than a decade ago as “digital gold,” a long-term value reserve that would defy broader economic trends and provide a hedge against inflation.
But the falling price of Bitcoin in the past month shows that the vision is far from realistic. Instead, traders are increasingly treating cryptocurrency as another early technology investment.
Since the beginning of this year, Bitcoin price movements have closely reflected that of the Nasdaq, a brand that weighs heavily on tech stocks, according to data analysis company Arcane Research. That means that as Bitcoin prices fell by more than 25 percent in the past month, to below $ 28,000 on Thursday – below half the November peak – the decline came close to the closing and collapse of technology shares as investors faced and high interest rates. and the war in Ukraine.
The growing correlation helps explain why those who bought crypto currency last year, hoping it would become more valuable, have seen their investment volcano. And although Bitcoin has always been volatile, the growing similarity with its risky stocks of technology clearly shows that its promise as a resource for change has not yet been fulfilled.
“It justifies the argument that Bitcoin is like gold,” said Vetle Lunde, an Arcane analyst. “Evidence shows that Bitcoin is a dangerous asset.”
Arcane research yielded a number between 1 and -1 to capture the price ratio between Bitcoin and Nasdaq. The 1st mark showed perfect balance, meaning that the prices moved in parallel, and the -1 mark represented the complete difference.
Since January 1, the average 30-day Bitcoin-Nasdaq score has approached 1, reaching 0.82 this week, the closest ever to a full one-to-one ratio. At the same time, Bitcoin price movements have varied from falling gold prices, assets that have been compared many times.
The merger with Nasdaq has grown in the wake of the coronavirus epidemic, fueled in part by institutional investors such as hedge funds, donations and family offices that have poured money into the cash market.
Unlike the well-meaning people who developed the original passion for Bitcoin in 2010, these professional traders consider cryptocurrencies as part of a larger and more cost-effective technology investment archive. Some of them are under pressure to get short-term revenue for customers and are not very ideologically committed to the long-term potential of Bitcoin. And when they lose faith in the tech industry more broadly, that affects their Bitcoin business.
“Five years ago, the people who were in crypto were crypto people,” said Mike Boroughs, founder of blockchain investment fund Fortis Digital. “Now you have people who are in a whole range of dangerous assets. So when they are beaten there, it affects their psychology.
Concerns in the stock market – affected by challenging economic trends, including the Russian invasion of Ukraine and historic inflation rates – have been particularly evident in the fall in technology stocks this year. Meta, a company known as Facebook, has dropped by more than 40 percent this year. Netflix has lost 70 percent of its value.
On Wednesday, shares of Coinbase, a cash exchange, fell 26 percent after reporting a decline in revenue and losses of $ 430 million in the first quarter. Shares of the company have dropped by more than 75 percent overall this year.
The Nasdaq is already in the bear market area, having finished Wednesday less than 29 percent from its mid-November record. November was also the time when the Bitcoin price reached a peak of around $ 70,000. The accident has been a proof of the truth for Bitcoin evangelists.
“There was this indisputable retail belief that Bitcoin at the end of last year was a barrier to inflation – it was a safe haven, it would have replaced the dollar,” said Ed Moya, a secret currency analyst at OANDA trading company. “And what happened was that inflation started to get worse, and Bitcoin lost half of its value.”
The prices of other encrypted coins have also been reduced. The price of Ether, the second most valuable cryptocurrency currency, has dropped by nearly 25 percent since early April, to less than $ 2,300. Others, like Solana and Cardano, have also been affected by the sharp decline this year.
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Bitcoin has rebounded from huge losses before, and its long-term growth remains impressive. Before the catastrophic rise in crypto prices, its value was less than $ 10,000. True believers, who call themselves maximalists of Bitcoin, remain adamant that cryptocurrency will eventually relinquish its balance and risky assets.
Michael Saylor, chief executive of the trading company MicroStrategy, has spent billions of his company’s money on Bitcoin, saving more than 125,000 coins. As Bitcoin prices rise, the company’s shares have dropped by about 75 percent since November.
In an email, Mr. Saylor blamed the crash on “traders and technologists” who do not appreciate Bitcoin’s long-term ability to transform the global financial system.
“In the near future, the market will be dominated by those who do not appreciate the benefits of Bitcoin,” he said. “In the long run, maximalists will be proven right, because billions of people need this solution, and awareness spreads to millions more every month.”